Are you increasing your rent in 2011? (Ontario)

[Nicola]

Ontario is allowing a whopping 0.7% rent increase in 2011. Just wondering if people are planning to raise their rents or just leave it. I wonder if raising rent by such a small amount (less than $10 on $1400) just annoys the tenants for no great benefit.

Interested to hear your opinions!

Thanks,
Nicola

 

[Pheenix]

QUOTE (Nicola @ Sep 1 2010, 04:10 AM) Ontario is allowing a whopping 0.7% rent increase in 2011. Just wondering if people are planning to raise their rents or just leave it. I wonder if raising rent by such a small amount (less than $10 on $1400) just annoys the tenants for no great benefit.

Interested to hear your opinions!

Thanks,
Nicola

Hi Nicola
Do it, plain and simple. These increases compound.

Past experience is that it is easier to raise little bits than look for a larger amount later, in terms of client reaction in any transaction. The only exception is when there is competitive pressure, and then I would suggest looking for other incentives first.

Good luck.

 

[markl]

Nicola,

You have to judge your market. I for one am increasing the rent in all my units. $10 - $25 per month on every unit when you start owning more than 1 or 2 starts to add up as well your costs are rising so your return is diminishing if you do not increase the rents.

For example f you own 10 doors and as you say the rents are $1,400.00 for a $10.00 increase you have just increased your cash flow by $100.00 per month or the equivalent of adding another door to your portfolio.

Don has a wonderful letter he uses for rent increases that I believe is in the forms section of the website you should have a look.

Regards,

 

[JoeRagona]

QUOTE (markl @ Sep 1 2010, 11:01 AM) Nicola,

You have to judge your market. I for one am increasing the rent in all my units. $10 - $25 per month on every unit when you start owning more than 1 or 2 starts to add up as well your costs are rising so your return is diminishing if you do not increase the rents.

For example f you own 10 doors and as you say the rents are $1,400.00 for a $10.00 increase you have just increased your cash flow by $100.00 per month or the equivalent of adding another door to your portfolio.

Don has a wonderful letter he uses for rent increases that I believe is in the forms section of the website you should have a look.

Regards,

Hmmm, before I read your response here Mark, I was going to reply NO. But when you look at it from the `10` door analogy you are absolutely correct. No I`ll have to ponder again.

(Just because of that its YOUR turn to buy lunch

)

 

[terri]

QUOTE (Nicola @ Sep 1 2010, 01:10 AM) Ontario is allowing a whopping 0.7% rent increase in 2011. Just wondering if people are planning to raise their rents or just leave it. I wonder if raising rent by such a small amount (less than $10 on $1400) just annoys the tenants for no great benefit.

Interested to hear your opinions!

Thanks,
Nicola


I don`t raise on every tenant every year, but when I do, I try to round down to a nice even number. It doesn`t really matter when it`s one person or a family but when it`s shared roomates, I like to make it more easily divisible, so if there are 3 people sharing an apt, I will send them a letter with their rent increase explaining about ever increasing property taxes, water bill increase and this year an hst tax. I`ll let them know that according to the guideline for 2011 I can legally raise the rent by $17.36/mo, but I will only raise it $15, so that each person will only be paying $5 more a month. I think that it shows that I`ve thought about how the rent increase will effect them and not just my own bottom line .

Now, that being said, perhaps I`m not a good person to be taking advice from on the subject. I very rarely do rent increases except when I`ve got new tenants moving in. I`m convinced that the key to any real rental increase in Ontario is to target a demographic that will only stay for 2-4 yrs.

 

[Al Verwey]

QUOTE (Nicola @ Sep 1 2010, 04:10 AM) Ontario is allowing a whopping 0.7% rent increase in 2011. Just wondering if people are planning to raise their rents or just leave it. I wonder if raising rent by such a small amount (less than $10 on $1400) just annoys the tenants for no great benefit.

Interested to hear your opinions!

Thanks,
Nicola

Nicola,

I used the low amount for next year as a selling point for my leases that are renewing this year. I told my tenants that, reluctantly, I would have to increase the rents by 2.1% but would offer them the option of a 2-year lease. Of course, I didn`t mention that next year`s increase would have been minimal. Presumably, they see it as an act of generosity on my part and an opportunity to keep their rent costs stable for 2 years.

Al Verwey
Penta V Holdings
Newmarket, ON

 

[ontariolandlord]

QUOTE (AlVerwey @ Sep 3 2010, 12:32 AM) Nicola,

I used the low amount for next year as a selling point for my leases that are renewing this year. I told my tenants that, reluctantly, I would have to increase the rents by 2.1% but would offer them the option of a 2-year lease. Of course, I didn`t mention that next year`s increase would have been minimal. Presumably, they see it as an act of generosity on my part and an opportunity to keep their rent costs stable for 2 years.

Al Verwey
Penta V Holdings
Newmarket, ON
It`s automatic. And part of my lease.

2011 is a politically influenced 0.7%!!!!

 

[housingrental]

Isn`t this invalid?
You still need to serve a notice of rent increase form?
QUOTE (ontariolandlord @ Sep 3 2010, 10:22 PM) It`s automatic. And part of my lease.

2011 is a politically influenced 0.7%!!!!

 

[ontariolandlord]

QUOTE (housingrental @ Sep 4 2010, 02:11 PM) Isn`t this invalid?
You still need to serve a notice of rent increase form?
Good question.

I still send out the proper forms. I`m simply up front about it and everyone knows where I stand from day 1. No tension later on.

 

[Nir]

Nicola, do not increase rents in 2011. There is benefit to not increasing the rent equivalent to around 0.5% increase. Therefore, 0.7% is not worth it. it`s beyond the scope of this forum to explain or prove this. but here is just one example: Joe is a long term tenant who doesn`t like seeing an increase from you every year. 2011 is your opportunity to impress him and make him an even better tenant. it will only "cost" you 0.7% of his rent/mo NOT to increase his rent VS. 2.1% it would this year had you not increase rents in 2010. As a rule of thumb: increase only if >1% increase is allowed. Regards, N.

 

[Pheenix]

QUOTE (investmart @ Sep 5 2010, 10:18 PM) Nicola, do not increase rents in 2011. There is benefit to not increasing the rent equivalent to around 0.5% increase. Therefore, 0.7% is not worth it. it`s beyond the scope of this forum to explain or prove this. but here is just one example: Joe is a long term tenant who doesn`t like seeing an increase from you every year. 2011 is your opportunity to impress him and make him an even better tenant. it will only "cost" you 0.7% of his rent/mo NOT to increase his rent VS. 2.1% it would this year had you not increase rents in 2010. As a rule of thumb: increase only if >1% increase is allowed. Regards, N.

Do you propose that you would increase say in the second year (2012) by 1.449% (7% & 7% compounded) if the allowable limit remains the same as 2011?

Otherwise and with all respect how many years of <1% increases would you extend your `no increase policy` for? Would you do the compunding when you did? Would you send out letters declaring `no increase`, if so, these are the same cost as the increase notices to prepare and send. So what is the advantage, other than `human face`, psychological, aspect is there?

My limited experience suggests that if they don`t like increases every year they don`t like them at all and will grumble either way. Some individuals would prefer this, agreed, and while they may accept an even greater increase less frequently, such as the compounding illustrated here, but a less sophisticated recipient of your consideration will complain, so why not just let the grumbles roll by, and set your systems to provide increases every year, for everyone (rounded down if you want to be considerate).

As per Mark, above, the larger your portfolio the more important it is both financially and administratively to `automate` your adjustments.

Just my humble opinion, but I`m open to, and curious about, your argument about why avoiding an increase of 0.5% or less is a `benefit`. Thanks.

 

[JoeRagona]

QUOTE (investmart @ Sep 5 2010, 10:18 PM) Nicola, do not increase rents in 2011. There is benefit to not increasing the rent equivalent to around 0.5% increase. Therefore, 0.7% is not worth it. it`s beyond the scope of this forum to explain or prove this. but here is just one example: Joe is a long term tenant who doesn`t like seeing an increase from you every year. 2011 is your opportunity to impress him and make him an even better tenant. it will only "cost" you 0.7% of his rent/mo NOT to increase his rent VS. 2.1% it would this year had you not increase rents in 2010. As a rule of thumb: increase only if >1% increase is allowed. Regards, N.


Good point and my ORIGINAL thinking. First time I have been `on the fence`

Also, is `compounding` legal? If I do not raise this year and assuming the increase is the same next, can I now double that increase? I thought you could not do this as you have one chance per year in Ontario to raise the rent with a current tenant.

 

[housingrental]

Thanks for your thoughts!
QUOTE (ontariolandlord @ Sep 5 2010, 09:20 PM) Good question.

I still send out the proper forms. I`m simply up front about it and everyone knows where I stand from day 1. No tension later on.

 

[housingrental]

You are correct
You can NOT do this

QUOTE (JoeRagona @ Sep 6 2010, 11:58 AM) Good point and my ORIGINAL thinking. First time I have been `on the fence`

Also, is `compounding` legal? If I do not raise this year and assuming the increase is the same next, can I now double that increase? I thought you could not do this as you have one chance per year in Ontario to raise the rent with a current tenant.

 

[JoeRagona]

QUOTE (housingrental @ Sep 6 2010, 12:54 PM) You are correct
You can NOT do this

Thanks for the clarification Adam, I thought I was missing something.

So to speak to the poster about not increasing with <1% increase allowance, if this continued (at least for me) into 2012, I would increase the second year (after skipping 2011)

 

[Pheenix]

QUOTE (JoeRagona @ Sep 6 2010, 11:58 AM) . . .Also, is `compounding` legal? If I do not raise this year and assuming the increase is the same next, can I now double that increase? I thought you could not do this as you have one chance per year in Ontario to raise the rent with a current tenant.
QUOTE (housingrental @ Sep 6 2010, 12:54 PM) You are correct
You can NOT do this

Hi Adam / Joe
This is actually my point. If you can`t be assured of making up the difference in the future, make the move when you can.

If you can`t roll the increase than you lose the compounding too, and if you set a arbitrary limit close to this allowable increase, because it is too low, than you will over time be losing ground. At the very least you fail to move with the CPI (localized supposedly), upon which the allowable increase is based - costs up, revenues neutral, owner loses.

Then the questions remain, is this a one time thing, or how many years do you want to do this? What if it the limit is too low 3 out of 10 years (what if it is more than 3)? Have you not already `trained` your tenant that you don`t raise your rent when the allowable increase is small. So in this example you are now running somewhere about 3% behind where you would otherwise be (assuming those low years average 0.7% each).

To use Mark`s earlier example of $1400 per for 10 doors you are out over $5000 (1400*12*10*3%) per year, every year, under this example. This is for every year after the third missed increase, and more because you would lose some of the compounding on the intervening `good increase` years. Assuming a hold of 15 years after the third increase this is $75,000 in lost income.

Now lets look at the effect on capitalization. Assuming a 8% cap, and sticking with the example, you have also lost $62,500 (12.5*$5000) in unrealizable capital value (would certainly go along way to covering the transaction costs on exit, at least). This added to your lost income for the 15 years that`s $137,500, unleveraged - pretax or deferred. A gift basket a year for the same 10 doors would be far cheaper, me thinks.

If you have a 5 to 10 times larger portfolio, that is $687,500 - $1,375,000 - no longer small potatoes. Probably more because you would have been able to leverage against the increased cash flow or reduced your interest expenses over multiple years.

Small numbers have a way of complexing, so unless there is a strong market driven reason not to, I still think it is better to use these opportunities to your advantage, however small they seem. I would not assume that this small amount is truly an anomaly.

Clearly there are a number of assumptions here and they are made only to illustrate my point.

Oops - Just realized that the numbers I put in were based on 4 times (in 10 years not 3) so adjust accordingly, and take the point not the assumptions please.

 

[JoeRagona]

Hi Brad,

My math is not a great as yours

I can only comment that

[list type=decimal][*]My tenants probably won`t be around for the years you are suggesting to have the lost income, therefore when I get new tenants, I simply raise my rents.My rents are premium amounts from the beginning - which is why it takes me longer to rent

[/list type=decimal]I think a letter explaining I will forego an increase THIS year and MOVE it to next year because they have been an awesome tenant or something like that will do wonders. If not and they leave next year close to increase, then I would have new tenants at the going rate again.

I`m not suggesting you are wrong, I"m just saying it`s how I see the tenants lifespan in my unit.

 

[Pheenix]

QUOTE (JoeRagona @ Sep 7 2010, 01:14 AM) [list type=decimal][*]My tenants probably won`t be around for the years you are suggesting to have the lost income, therefore when I get new tenants, I simply raise my rents.My rents are premium amounts from the beginning - which is why it takes me longer to rent

[/list type=decimal]I think a letter explaining I will forego an increase THIS year and MOVE it to next year because they have been an awesome tenant or something like that will do wonders. If not and they leave next year close to increase, then I would have new tenants at the going rate again.

Hi Joe

Points taken, and I will add - ensure a demographic that fits the target tenancy duration. Can be delicate balance between too slow and too rapid turn over; short periods of no revenue versus extended periods of lower revenue.

Recently thought I had identified a mis-managed property, no/low increases for years. Seemed to fit the target demographic, reasonably well maintained, in an area less familiar to me. Further research showed that it was sufficiently outside a shifting `demand zone` that you had to keep the rents down to attract the tenants. Turns out it was the dog of a small portfolio, and slowly going lame to boot!

 

[housingrental]

Good posts above Brad and Joe
To add as a general - upscale single family homes generally have tenants changing over every few years as the renters can afford to purchase and often will as they`ve now saved there down payment, are secure in their job, and gotten use to the area they`ve recently come to for work, or are leaving again to a different area.
The exact opposite is to be found in more purpose built rental apartment stock - a much higher likelihood of long term tenants that stay on 5+ years - and the benefits of increasing rent yearly really start to show.

 

[ontariolandlord]

I`ve found that if you are offering a high quality space in a high quality area, the minor increases in Ontario are rarely a serious issue.

In fact, the can be a "warning sign" that tenants are facing some economic insecurity and may want to move out soon. I`m up front with the "automatic" rent increases from Day 1. If a tenants become concerned about an extra $10-30/month it is a good and helpful `flag` (not red, just a flag) that they may be thinking of leaving upon the end of their lease term.